MOGA & Shale 4.0
Reworking existing wells is the boom
This weeks report is open to all. If you enjoy the report, please like/share/re-stack.
In this report: More oil landing onshore, Shale 4.0 and indepth C.O.T data shows a clear picture.
Key Stats: WTI -3.29% (-$1.97) for the week. Open $59.80 High $60.85 Low $57.38 Close $57.98
Articles
Oil extends decline by 2% as US presses for Russia-Ukraine peace deal
Shale Oil’s Next Revolution Should Worry OPEC – Javier Blas
How Germany is building up LNG import terminals
Globalization did not hollow out the American middle class
View
We are seeing an acceleration of the build in onshore inventories. What has been at sea, is only starting to land onshore. I expect this to kick in aggressively over the next month.
Oil has sold down in tandem with an unwind in equities. Many will look at NVIDIA’s earnings report as the linchpin. The earnings were good. The market immediately bought the earnings number, then sold down aggressively on the reopen of trade. This is deleveraging. People sell what’s liquid to fund that which is less liquid, or go to cash. The reasons for correlation are myriad.
It is somewhat clearer now, how the same liquidity that kept equities elevated, also kept energy alive. In the last week, I decided to liquidate XLE April put spreads. The reason for which was that despite shitty looking futures and an oversupplied 12 month forward market, the single stocks were being bought up- back to highs. The price action simply was not agreeing with my trade thesis. Timing is everything. XLE did close -2.28% on the week. It’s never about being right, its always about right timing.
It seems destined now that $55’s trade on WTI in the next 5 trading sessions, if not lower.
Shale 4.0 — The Long Tail That Changes the Game
For all the noise about U.S. “energy dominance,” shale still leaves 85%–90% of its oil in the reservoir. Shale 4.0 is the industry’s attempt to close that gap — not by drilling more, but by recovering more from the rock they already know is rich.
Exxon is pushing lightweight proppants made from petroleum coke to get deeper into the fractures; Chevron is working on surfactants that reduce friction and let trapped oil move. The payoff is enormous: a single percentage-point increase in recovery is worth billions across the Permian, Bakken and DJ. This isn’t about unleashing a new super-cycle — it’s about turning shale from a short-burst sprinter into a marathon runner that stays on the field far longer than OPEC+ expected.
If these techniques scale — and the Americans usually find a way- U.S. supply gets a longer tail, and every extra barrel that surfaces limits how much OPEC+ can safely pump. As Diamondback’s Kaes Van’t Hof put it: ‘‘never underestimate the American engineer.’’
Commitment Of Traders Report
In summary. We have a dual factor of Commercials increasing their short interest (hedging against downside price). Simultaneously, Specs are increasing their short side. Double trouble. This is seen through deteriorating price on front month futures. Not a regime to be long into or to get smart with/ fade. More downside cometh.
We have built in a small machine learning model into the C.O.T analysis tool. This is now triggering signals that show extreme short side interest.
Overall, the dropping open interest in Oil is stark -Look to the non-commercials charts below - MOGA- Make Oil Great again!
Something to note is the shift in open interest away from Oil and into Nat Gas. A trend in place for a number of years. There are more traders in Gas than in oil.
Commercials
See rising on the short side-indicative they are hedging against downside of current prices.
Non Commercials/ Specs
Short side increasing/ long side reducing. It all points only one way……..down. This is the shortest Specs have been since June 2023.
Specs participating less and less in WTI.
Specs Long/Short ratio back to 2016 levels.
TRADE
Equities and crypto have setup an interesting stage of liquidation last week. DOW, ES AND NQ all came into buying territory on The VWAP report. The correlation effect indeed kicked in across to oil. The main show in oil macro now is the peace deal and its respective timeline that Zelenskyy has been given by The White House. The oil market has priced out any and all risk premia left in the contracts. What also prices in is the potential for US and EU sanctions on Russian oil to get lifted. This will surely bring us SUB $55 on WTI. The potential for this is a long ways off.
I think we will most probably sell down on Equities again this week. Even if we don’t, I think oil will move lower, breaking recent lows. Targets down are $55.12 with stretch targets circa $53.00. As always, if we are a seller, we look to sell from as high/expensive as possible.
If we look at seasonality of the Jan contract from 24th November, we can see we still have a ways to go before any buying may come through. This is 30 years worth of seasonality.
If you found this useful, please do smash the like/ share buttons.
Trading is waiting. Waiting is trading!
Tim
Disclaimer & Disclosure
For informational and educational purposes only. This publication does not constitute investment advice, a solicitation, or a recommendation to buy or sell any financial instrument. The author is not a registered investment adviser, commodity trading adviser, or financial analyst. All views expressed are personal opinions based on publicly available information. Trading futures, commodities, and derivatives involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. Readers should conduct their own due diligence and consult a qualified financial professional before making any trading or investment decisions. The author may hold positions in instruments discussed.